overview of retirement in the private sector (dallas salisbury)
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Employee Benefit Research Institute 2011
Is There a Future for Retirement?in aWorld of Individual Decisions?
Dallas L. Salisbury
President
Employee Benefit Research InstituteJune 13, 2011
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Employee Benefit Research Institute 2011
Percentage of Private Sector Workers Participating in anEmployment-Based Retirement Plan by Plan Type, 1979-2009*
Source: DoL Form 5500 Summaries through 1998.*EBRI estimates 1999-2009
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Defined Benefit Plans in Transition
1/3 of private DB now hybrid with LSD option
of private DB offer LSD at retirement and job change
Most private DB offer LSD on pre-retirement job change
Five states have now begun shift to plans that offer LSD
Pressure to move to DC from DB in public sector would likely includemove to individual direction and LSD options
Introduces many individual decisions with the most important beingwhether or not to take any life income since the older you get themore longevity risk becomes your biggest risk (and running out ofmoney before you run out of life)
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Employee Benefit Research Institute 2011
Active Participants in 401(k) Plans, 1984-2008(millions)
Source: DoL Pension Plan Bulletin, Historical Tables, 1975-2008.*In 2004, the DoL counted active participants differently causing a one year jump in the number of active participants.
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Employee Benefit Research Institute 2011
Number of 401(k) Plans, 1984-2008
Source: DoL Pension Plan Bulletin, Historical Tables, 1975-2008.
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Brief Chronology of the Development of the 401(k) plan in the US
Genesis -- 1978
Section 401(k) added to IRC Expansion to salary deferrals -- November 1981
Proposed regulations
Constraints added in the 1980s* 402(g) limit
ADP/ACP nondiscrimination tests
Restrictions on hardship withdrawals
Flexibility added in the 1990s Safe-harbor plans (might want to mention SIMPLE plans too but I dont think you will have enough time)
Automatic enrollment
The last ten years Catch up contributions
Roth 401(k)
PPA and the mitigation of administrative concerns for automatic enrollment
Increase in percentage of 401(k) plans using automatic enrollment and auto escalation ofcontributions
QDIA regulations
The rise of TDFs
2008/9 market crises
Enron and the appropriateness of company stock
*mention that 415(c) was decreased but that applied to all DC plans
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Employee contributions for men by age as a percentage of annualcompensation for various combinations of initial match rate andmaximum amount of compensation matched
Source: VanDerhei, J. L. Copeland, C.
A Behavioral Model for Predicting Employee Contributions to 401(k) Plans.NorthAmerican Actuarial Journal(2001).
http://www.google.com/url?q=http://www.soa.org/library/journals/north-american-actuarial-journal/2001/january/naaj0101_6.pdf&sa=D&sntz=1&usg=AFQjCNGRoTdpGYoZyLrIdUjEAvW6pO-1hghttp://www.google.com/url?q=http://www.soa.org/library/journals/north-american-actuarial-journal/2001/january/naaj0101_6.pdf&sa=D&sntz=1&usg=AFQjCNGRoTdpGYoZyLrIdUjEAvW6pO-1hg -
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Predicted Contributions for Selected Persons and Plans
Source: VanDerhei, J. L. Copeland, C.
A Behavioral Model for Predicting Employee Contributions to 401(k) Plans.NorthAmerican Actuarial Journal(2001).
http://www.google.com/url?q=http://www.soa.org/library/journals/north-american-actuarial-journal/2001/january/naaj0101_6.pdf&sa=D&sntz=1&usg=AFQjCNGRoTdpGYoZyLrIdUjEAvW6pO-1hghttp://www.google.com/url?q=http://www.soa.org/library/journals/north-american-actuarial-journal/2001/january/naaj0101_6.pdf&sa=D&sntz=1&usg=AFQjCNGRoTdpGYoZyLrIdUjEAvW6pO-1hg -
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Impact of suspending employer contributions:Percentage of 401(k) participants continuing to contribute in 2008after a suspension in employer contributions by match rate proxy
Note: tabulations from 401(k) plans with more than $100,000 in employercontributions in 2007 and none in 2008.
Source: Jack VanDerhei, Falling Stocks: What Will Happen
to Retirees' Incomes? The Worker Perspective, Presentation forThe Economic Crisis of 2008: What Will Happen to Retirees
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Have you (or your spouse) tried to figure out how much money you will need to have saved by
the time you retire so that you can live comfortably in retirement? (2011 Workers n=1004)
The percentage of workers doing a retirement needscalculation.
: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc.,11 Retirement Confidence Surveys.
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Where Are Account Balances?
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401(k) Account Balancesa Among 401(k) ParticipantsPresent From Year-End 1999 Through May 1, 2011b
Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project.a Account balances are participant account balances held in 401(k) plans at the participants' current employers and are net of plan loans.Retirement savings held in plans at previous employers or rolled over into IRAs are not included.b The analysis for 1999 through 2009 is based on a group of 1.6 million participants with account balances at the end of each year from 1999through 2009. The values for 2010 and May 1, 2011 are EBRI estimates
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Figure 2: Change In Average Account Balances (by Age andTenure) From January 1, 2010 June 1, 2011 Among 401(k)Participants with Account Balances as of Dec. 31, 2009
Sources: 2009 Account Balances: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data CollectionProject; 2011 Account Balances: EBRI estimates. The analysis is based on all participants with account balances at theend of 2009 and contribution information for that year.
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Employee Benefit Research Institute 2011
See EBRI April 2010 Issue Brief for more detail
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EBRI Retirement Readiness Rating - where is the baseline today?
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EBRI 2010 Retirement Readiness Ratings
Sources: EBRI/ERF Retirement Security Projection Model version 100504e; The NationalRetirement Risk Index: After the Crash, Center for Retirement Research at Boston College, October
2009; Long-term Care Costs and the National Retirement Risk Index, Center for RetirementResearch at Boston College, March 2009
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Impact of salary on at risk probability
Source: EBRI/ERF Retirement Security Projection Model version 100504e
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Impact of age and future years of eligibility for participation ina defined contribution plan on at risk probabilities
Source: EBRI/ERF Retirement Security Projection Model version 100504e
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Employee Benefit Research Institute 2011
Analyzing the importance of retirement age
Figures 20-22 of the EBRI July 2010 Issue Brief presents additionalsavings (expressed as a percent of compensation) needed toachieve various probabilities of success for retirement age at 65
Unfortunately, the results for many combinations of age/income cohorts wouldbe too high to be feasible
We have always known that the other possibility may be to deferretirement age Assumes this is feasible
I.E., no health problems for worker or spouse, job still available
The Retirement Confidence Survey has consistently found that alarge percentage of retirees leave the work force earlier thanplanned
45 percent in 2011
Easy to do stylized examples, but what would the impact be for babyboomers and gen Xers?
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HOW MUCH DO WE NEEDWHEN WE CONSIDER HEALTHCOSTS?
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Multiple of Final Earnings for a 90% Chance of Adequacy
Males Retiring at Age 65 in the Lowest-Income Category: Final Earnings of $16,932
Building Block 2: Investment and longevity stochastic, health care expenses deterministic
Source: Simuations from Ballpark E$timate Monte Carlo, Employee Benefit
Longevity annuity
Immediate annuity
Degree of Annuitization
Degree of Annuitization
Degree of Annuitization
20%
16x & 17X Fin Ern
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Employee Benefit Research Institute 2011
Multiple of Final Earnings for a 90% Chance of Adequacy
Males Retiring at Age 65 in the Lowest-Income Category: Final Earnings of $16,932
Building Block 3: Investment, longevity stochastic, and health care expenses stochastic
Source: Simuations from Ballpark E$timate Monte Carlo, Employee Benefit
Longevity annuity
Immediate annuity
Degree of Annuitization
Degree of Annuitization
30x Fin Ern
21% & 18%
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The Impact of Modifying the Exclusion of EmployeeContributions for Retirement Savings Plans From
Taxable Income
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Is There a Future for Retirement?in aWorld of Individual Decisions?
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In most cases: TheIndividual Will
Decide!
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DiscussionDiscussion
Dallas SalisburyDallas Salisbury www.ebri.org
www.choosetosave.orgwww.choosetosave.org
http://www.ebri.org/http://www.ebri.org/ -
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